Sunday, February 14, 2010

DA on parastatals

In a recent feature article by Politicsweb, Dion George of the Democratic Alliance writes about the principles underlying the DA's 2010 budget:
  1. Competition
  2. Choice
  3. Personal responsibility
While a substantial part of the article contains needless waffle and mistruths about the ruling party, I am encouraged to see that competition and accountability feature so prominently in ths list. Competition is seldom recognised by the ANC as an important social good when constructing policy.

On parastatals
The DA argues for the privatisation of parastatals over time. Names like Eskom, SAA and the SABC have become synonymous with inefficiency, wastage of public finances, mismanagement and corruption, even though the SAA has recently turned its financial position around.

The failure of parastatals worldwide is understandable from a microeconomic perspective if one accepts that the incentives facing such institutions predispose them to failure. A public entity, unlike a private entity in a competitive environment, has little incentive to structure its operations efficiently or to employ its financial resources to add the greatest value to its customers. On the contrary, with government underwriting its activities, public corporations are incentivised to take a disproportionate amount of risk, and on failure to request additional capital - a 'bailout'.

In South Africa, where state accountability and management expertise is limited, the government as majority shareholder has little incentive or ability to ensure the proper functioning of state-owned corporations. As South African citizens we should inform ourselves of the issues surrounding privatisation and we should make our voices heard.

Next up - nationalisation of mines or nationalisation of the Reserve Bank?

The reader can find a relatively balanced article on privatisation of parastatals on Wikipedia.


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  2. A few months back Leon Louw was on Judge For Yourself, discussing the issue of foreign companies being sued in America for doing business with the Apartheid government. He argued that because it was the state that actually legislated and enforced Apartheid, non-white South Africans should rather focus their effort on demanding compensation from the current SA government! He pointed out that just because it is under new management doesn't make government less culpable, just as a corporation would not be excused because it has new directors. The state amassed vast wealth during Apartheid, and it's not surprising that ANC politicians are less that willing to let go of it.

    Louw therefore argued that the ownership of the parastatals, land and other government assets should be transferred directly and equitably to all the people who suffered under Apartheid (including whites who were persecuted). Alternatively, government could slowly sell off their shares in parastatals and distribute the proceeds in the form of a basic income grant.

    Such a privatization programme would substantially increase the household wealth of the poorest South Africans and pretty much eliminate the perverse incentives currently plaguing the public enterprises. In addition, compared to the traditional method of taxing income and profits, this kind of redistribution would actually boost rather than hinder economic growth.

  3. The description of a talk given by Leon Louw on 23 February 2010, entitled 'Nationalisation: Malan to Malema':

    "The ghosts of DF Malan, Hendrik Verwoerd and other apartheid founding fathers are walking the corridors of power, grinning broadly at the prospect of their failed policies being implemented by the ultra-left faction of the ANC. They are rooting for them to triumph over better-informed and more rational ANC leadership.

    Leon will address the paradoxical similarities between the NP and ANC in the context of the latest IPRI [International Property Rights Index] which shows incontestably that the interests of the masses can be served only by elevating property rights to a primary national goal and commitment, and that stagnation and destitution are the inevitable consequences of compromising property rights."

  4. I think so! By the way, when I read George's article the mistruths and waffle didn't exactly jump out at me. I actually thought it provided a clear summary of the core flaws in the current government's philosophy. Just curious about what particular points you didn't agree with.

  5. Here's the DA's opinion on what the budget left out regarding parastatals:

    "What we remain concerned about is the failure of the ANC to address the crisis facing our parastatals. Minister Gordhan offered R 2.5 billion to the Land Bank and a R 15.2 billion guarantee to the Development Bank of South Africa. This brings the total amount of all forms of financial support to parastatals to R 260 billion over the last four years. The ANC continues to behave as if R260 billion in parastatal bailouts is business as usual. It is not - but as long as the ANC administration treats it as such, we will continue to divert billions away from service delivery, from education, and from infrastructure."


  6. @Julian let me provide some quotes, amongst others. Incidentally, it's talk like this that undermines the DA's credibility when otherwise it offers some attractive policy alternatives to the ANC.

    "...the ANC's closed, patronage society, which has at its heart a distorted version of the "Developmental State"."

    "The ANC's model ... aims to centralise control, it promotes profligate public spending, it ensures the state is central to all aspects of a citizen's life and its foundations are built upon a series of deeply problematic policies (cadre deployment, for example). "

    "The "Developmental State" as envisioned and implemented by the ANC, limits choice ..., it prevents competition ... and it stifles opportunity ... ."

    We can debate whether some of these are objectively valid criticisms, but the way they are presented in this article is merely to discredit the ANC, regardless of their validity. They detract from the positive messages and proposals the DA is trying to put forward. In my opinion, anyway :)

  7. Ah, I think on this point we are in complete agreement. The DA has consistently failed in the communication and presentation of its good ideas (including George's article). From what I've seen, the DA does not acknowledge (in Leon Louw's words) the 'better-informed and more rational' factions within the ANC, and has made little attempt to reach out and provide intellectual/moral support to them.

    As you say, the DA is acting too much like a traditional opposition party, and focuses on discrediting the ANC. Rather, I would like to see them use language like "we the DA encourage the ANC to look at the evidence and reconsider their ideas" or "we have some suggestions for the ANC that we think would be beneficial for SA, let's discuss them together".

    ANC politicians must also get really frustrated when the DA doesn't give them credit for the market-friendly policies that they have pursued (e.g. low budget deficit, inflation targeting). Why bother trying when all you get is flak from both sides?

    Finally, the DA doesn't acknowledge that the ANC's socialist-leaning policies come directly from the 'advanced' European democracies. Just look at the mess Greece is in. The DA should say: "we don't blame you for thinking these are good policies, especially when the First World is doing it, but these are bad policies even for those countries, and this is why..."

    From my libertarian perspective, I still think George's criticisms are valid, but he should have qualified his statements with something like "While they're certainly not as bad as Hugo Chavez, the ANC..."

    Your thoughts?

  8. Yes to all of the above. I see there's been a recent DA announcement on the industrial policy put forth by the ANC. The announcement is great because the DA gets away from its ANC criticising and arguably presents a policy that I think is good regardless of one's political persuasion: